Wednesday, 20 July 2011

Air France/KLM- The (Parisian) embrace tightens?

According to a recent report in the Netherlands' de Telegraaf , an Air France group reorganisation will see a General Director replace the CEO role in KLM. The paper says that this person will report to a largely French national top level managment in Paris. It is unlikely that this will be welcomed in KLM's Amsterdam headquarters.

At the time of KLM's purchase by the Air France group there were promises of continuity of the brand,- which retains all its value ,-and of essentially the same structures for the next five years. This secured the deal and minimised the fuss. It also allowed KLM people to believe that this arrangement could perhaps continue well into the future , the airlines both having their own cultures as well as brand indentities. Indeed the KLM brand as well as its network is an ideal fit with Air France. KLM is highly regarded in the English speaking world particularly in the UK provinces and former UK territories overseas. To the British it doesn't have a strong national identity and what there is is neutral or friendly. Indeed to many KLM is almost British and no patriotic disloyalty is involved in flying with them. Air France on the other hand is definately French which immediately arouses historic positives and negatives. The combined carriers therefore offer something for everyone,- an assumption of chic style and a taste of something mildly exotic with Air France for the francophiles and something more familiar though less adventurous with KLM for the rest. Those sentiments apart ,the two networks work well both separately and in combination. The KLM brand is therefore unlikely to be tampered with.

If true, the increased centralisation and visible subordination of Amsterdam to Paris is no surprise. Whatever the comforting words spoken and the posed smiling handshakes at the time of the coming together, this sort of move is common in all mergers and aquistions. Sometimes integration is almost painfully slow (vis BEA and BOAC in the 1970s) and sometimes very rapid (Kraft's takeover of Cadburys in 2010). There are arguments for both. Air France/KLM looks as if it has taken a middle course with the aim of making it feel more evolutionary rather than revolutionary and less likely to alarm the Netherlands in particular.

Over at Heathrow and Madrid what was dressed up as a merger between BA (whose bride was twice nearly KLM way back in the 1980s/90s, but that's another story) and Iberia was actually a takeover of both brands by a new (Spanish) company, ICAG, initially owned by the former shareholders of the two companies. There a similar erosion of the independence of not just one but both brands is highly likely. At some time in the future it is reasonable to expect that the illusions of separate CEOs and Boards will also disappear. It does not much matter by which route a merger or takeover is achieved . The need to strip out costs means that the organisational slide into centralisation is almost inevitable. With that of course come savings including the selection of common aircraft and staff reductions . Expensive management numbers are an essential target and those of the junior partner are most vulnerable.

Another major announcement from Paris is that the expected order for around 100 widebodies is likely to be split between Airbus and Boeing. This in reality continues a policy already established in Air France and to a lesser extent in KLM which has had very pronounced Boeing leanings. To the surprise of many, Air France abandoned its A340 purchases after the -300 version and instead went for the Boeing 777 as did most other carriers once it became clear that Boeing could secure long range overwater clearances for the big twin. KLM has long showed a preference for Boeings for both long and short haul with only a small, almost niche, fleet of A330-200s now being augmented by -300s.

A final point of interest is that if some of the Group order were to go to the A350, Rolls Royce would ,through lack of choice, return as an engine supplier after a very long absence from both companies. KLM has not ordered a purely RR engine since the Dart on the F27 and Viscount 800 and neither has Air France since the Avon on the Caravelle. There was no choice on those either.